Experts say rates may hit 7.5%

In an open letter, nine leading economists condemned the Bank of England's Monetary Policy Committee for failing to halt pressure on inflation.

Their warning will horrify homeowners who are already rushing to get fixed-rate mortgages ahead of expected increases to the current interest rate of 5.25%.

The Consumer Price Index measure of inflation - the Government's inflation benchmark - has reached 3.1%. This is the highest level since the Bank of England gained control of interest rates ten years ago, as food and energy costs continue to rise.

'Inflation is back and it's going to get to 4% by the middle of next year,' said Tim Congdon, a former Treasury worker who was one of the nine who wrote the letter.

'It's not as bad as earlier cycles, but it's nevertheless bad and it's going to end the usual way. Rates will have to go to 6 to 6.5%, may have to reach 7.5%.' Mr Congdon's criticism is particularly directed at MPC bosses, many of whom were hand-picked by Gordon Brown.

The figures came as it emerged that banks and building societies are lending a record £1bn a day in home loans. Borrowing increased by 22% in March compared to the previous month, figures from the Council of Mortgage Lenders reveal.

First-time buyers desperate to get onto the housing ladder and homeowners keen to secure a fixed-rate deal are behind the surge. When Labour came to power in 1997, total mortgage lending stood at £77bn. Today that figure is handed out in just two months.

In March, £31.3bn was lent to buyers and homeowners - the equivalent of £42m every hour.

Figures show nearly 90% of first-time buyers are choosing a fixed-rate deal, but they face a struggle to find a bargain. In recent days, mortgage lenders have hiked rates on fixed mortgages ahead of next month's expected rate rise.

David Hollingworth, of mortgage advisers London and Country, said: 'People who are buying a home have got to look at the size of their mortgage from the point of view of interest rates probably going up again.

'Think about affordability of the mortgage not just today, but in the near future after one or even two more interest rate rises.'

Joshua Miller, economist at the Royal Institution of Chartered Surveyors, said: 'Consumers have rushed to lock into fixed rate mortgages, seeking security as they anticipate future interest rate hikes. First-time buyers, in particular, would have been keen to take advantage.'